Broker tips: Informa, BT Group, BAE Systems

Berenberg reinitiated coverage of Informa on Tuesday with a ‘buy’ recommendation and 820p price target.

"As a live events organiser and publisher, it is impossible to discuss Informa’s fortunes in recent years and current trends without mentioning the Covid-19 pandemic," the bank said. "Informa’s revenue nearly halved in 2020, and the company had to cancel the dividend and launch a £1bn equity issuance.

"However, Informa is now emerging as a different company than the one that entered 2020. Through well-executed M&A, management has refocused the company on its core areas of live trade events and academic publishing."

Berenberg noted the company’s £1bn buyback, and the Growth Acceleration Plan 2 (GAP 2), launched in late 2021, which it said has also accelerated Informa’s shift into digital services and should support longer-term growth.

"As growth starts to normalise following the post-Covid-19 recovery, we still anticipate 4-5% organic revenue growth into the medium term, meaning that valuation metrics become more appealing if investors are willing to look just a few years out," it said.

BT Group tumbled on Tuesday after UBS downgraded the shares to ‘sell’ from ‘neutral’ and cut the price target to 120p from 146p, as it assumed a halving of the dividend amid free cash flow pressures.

"We think the market has underestimated the impact of rising interest rates and accounting changes at BT Sport that impacts free cash flow," the bank said.

"Without a dividend cut, BT Group will have to borrow more than £900m per annum over the next three years.

"Borrowing to fund both the dividend and pension deficit payments when the cost of debt is rising presents risks and we assume a halving of the dividend to 3.85p (from 7.7p)."

Analysts at J.P.Morgan retained their 'overweight' stance for BAE Systems despite speculation that the past weekend's events in Russia might foreshadow a quicker end to the war in Ukraine.

They conceded that was indeed "possible", albeit "as are many other scenarios".

In any case, their still positive stance on European Defence was predicated on two factors.

First, regardless of how or when the war ended, they judged that Europe was only at the beginning of a 5-10 year defence spending upcycle.

So too several Asian countries such as Australia and Japan.

Secondly, on the basis of already won contracts, they envisaged "very robust" multi-year growth for several major European Defence firms.

The three larger defence stocks which they rated 'overweight' were BAE Systems, Rheinmetall and Thales.